SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
----- Exchange Act of 1934 for the quarterly period ended June 30, 1997.
Transition report pursuant to Section 13 or 15(d) of the Securities
----- Exchange Act of 1934 for the transition period from ___ to ___.
Commission File Number O-8092
OXIS INTERNATIONAL, INC.
A Delaware corporation
I.R.S. Employer Identification No. 94-1620407
6040 N. Cutter Circle, Suite 317
Portland, OR 97217
Telephone: (503) 283-3911
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
-------
At June 30, 1997, the issuer had outstanding the indicated number of shares of
common stock: 25,461,376
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Six Months Ended
June 30 June 30
-------------------------- -------------------------
1997 1996 1997 1996
Revenues:
Product sales $ 717,000 $ 1,200,000 $ 1,844,000 $ 2,537,000
Royalties and license fees 24,000 28,000 59,000 58,000
----------- ----------- ----------- -----------
Total revenues 741,000 1,228,000 1,903,000 2,595,000
Costs and expenses:
Cost of sales 472,000 652,000 1,244,000 1,577,000
Research and development 883,000 1,179,000 1,989,000 2,361,000
Selling, general and administrative 728,000 881,000 1,332,000 1,626,000
----------- ----------- ----------- -----------
Total costs and expenses 2,083,000 2,712,000 4,565,000 5,564,000
----------- ----------- ----------- -----------
Operating loss (1,342,000) (1,484,000) (2,662,000) (2,969,000)
Interest income 20,000 13,000 23,000 21,000
Interest expense (42,000) (48,000) (72,000) (117,000)
----------- ----------- ----------- -----------
Net loss $(1,364,000) $(1,519,000) $(2,711,000) $(3,065,000)
=========== =========== =========== ===========
Net loss per share $ (.07) $ (.12) $ (.16) $ $(.25)
=========== =========== =========== ===========
Weighted average number of
shares used in computation 19,884,092 12,204,520 17,012,334 12,164,472
=========== =========== =========== ===========
1
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1997 1996
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 4,188,000 $ 422,000
Accounts receivable 589,000 861,000
Inventories 491,000 591,000
Prepaid and other 265,000 191,000
----------- ----------
Total current assets 5,533,000 2,065,000
Property and equipment, net 1,264,000 1,327,000
Assets under capital leases, net -- 309,000
Technology for developed products
and custom assays, net 3,424,000 3,782,000
Other assets 269,000 514,000
----------- ----------
Total assets $10,490,000 $7,997,000
=========== ==========
2
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1997 1996
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 1,143,000 $ 1,221,000
Accounts payable 751,000 1,386,000
Customer deposits 273,000 132,000
Accrued liabilities 667,000 655,000
Current portion of long-term obligations 17,000 76,000
------------ ------------
Total current liabilities 2,851,000 3,470,000
Other liabilities -- 2,000
Shareholders' equity:
Preferred stock - $.01 par value; 15,000,000 shares
authorized:
Series B - 642,583 shares issued and outstanding
(liquidation preference of $1,500,000) 6,000 6,000
Series C - 1,021,697 shares issued and
outstanding at June 30, 1997 10,000 17,000
Series D - 1,150 shares issued and
outstanding at June 30, 1997 -- --
Series E - 960 shares issued and
outstanding at June 30, 1997 -- --
Common stock - $.50 par value; 50,000,000 shares
authorized; 25,461,376 shares issued and outstanding
at June 30, 1997 12,731,000 6,895,000
Additional paid in capital 30,941,000 30,706,000
Accumulated deficit (35,734,000) (33,023,000)
Accumulated translation adjustments (315,000) (76,000)
------------ ------------
Total shareholders' equity 7,639,000 4,525,000
------------ ------------
Total liabilities and shareholders' equity $ 10,490,000 $ 7,997,000
============ ============
3
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
--------------------------
1997 1996
Cash flows from operating activities:
Net loss $(2,711,000) $(3,065,000)
Adjustments to reconcile net loss to cash provided
by (used for) operating activities:
Depreciation and amortization 702,000 712,000
Changes in assets and liabilities:
Accounts receivable 260,000 201,000
Inventories 94,000 227,000
Other current assets (76,000) 141,000
Accounts payable (595,000) (240,000)
Customer deposits 142,000 (125,000)
Accrued liabilities 44,000 27,000
----------- -----------
Net cash used for operating activities (2,140,000) (2,122,000)
----------- -----------
Cash flows from investing activities:
Purchases of equipment (17,000) (24,000)
Other, net (7,000) 59,000
----------- -----------
Net cash provided by (used for) investing activities (24,000) 35,000
Cash flows from financing activities:
Proceeds from issuance of short-term notes 872,000 65,000
Proceeds from issuance of stock, net of related cost 6,240,000 3,205,000
Repayment of short-term borrowings (950,000) (619,000)
Repayment of long-term debt and capital lease obligations (58,000) (162,000)
----------- -----------
Net cash provided by financing activities 6,104,000 2,489,000
Effect of exchange rate changes on cash (174,000) --
----------- -----------
Net increase in cash and cash equivalents 3,766,000 402,000
Cash and cash equivalents - beginning of period 422,000 727,000
----------- -----------
Cash and cash equivalents - end of period $ 4,188,000 $ 1,129,000
=========== ===========
4
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS AND CONDENSED NOTES
The unaudited consolidated financial statements, which have been prepared in
accordance with the instructions to Form 10-Q, do not include all of the
information and notes required by generally accepted accounting principles
for complete financial statements. All adjustments considered necessary by
management for a fair presentation have been included. Operating results for
interim periods are not necessarily indicative of the results that may be
expected for the full year.
An annual report (Form 10-K) has been filed with the Securities and Exchange
Commission ("Commission") for the year ended December 31, 1996. That report
contains, among other information, a description of the Company's business,
audited financial statements, notes to the financial statements, the report
of the independent auditors and management's discussion and analysis of
results of operations and financial condition. Readers of this report are
presumed to be familiar with that annual report.
NEW ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT ADOPTED
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
---------
Comprehensive Income. SFAS No. 130 establishes standards for reporting and
--------------------
display of comprehensive income and its components (revenues, expenses,
gains, and losses) in a full set of general-purpose financial statements.
This Statement requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as other
financial statements. This Statement is effective for fiscal years beginning
after December 15, 1997. Management has not assessed whether its adoption
will have a material effect on its financial position or results of
operations.
In June 1997, FASB issued SFAS No. 131, Disclosures about Segments of an
--------------------------------
Enterprise and Related Information. SFAS No. 131 establishes standards for
----------------------------------
the way that public enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. This Statement is effective for fiscal years beginning after
December 15, 1997. Management has not assessed whether its adoption will
have a material effect on its financial position or results of operations.
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2. INVENTORIES
Inventories are stated at the lower of cost or market. Cost has been
determined by using the first-in, first-out and specific identification
methods. Inventories at June 30, 1997 and December 31, 1996, consisted of
the following:
June 30, December 31,
1997 1996
Raw materials $128,000 $148,000
Work in process 175,000 200,000
Finished goods 188,000 243,000
-------- --------
Total $491,000 $591,000
======== ========
3. NOTES PAYABLE
During March and April 1997 the Company borrowed $808,000 from certain
shareholders pursuant to issuance of short-term unsecured promissory notes
with a 3% origination fee and bearing interest at an annual rate of 8%. All
of the notes were due in May 1997. The majority of the noteholders are
indebted to the Company under the terms of an indemnification agreement.
Payment of the notes has been deferred pending the outcome of ongoing
discussions with representatives of the noteholders.
4. SHAREHOLDERS' EQUITY
On May 20, 1997, the Company issued 9,000,000 shares of its common stock
pursuant to an underwriting agreement with certain underwriters in France.
The underwriters purchased the stock at a price of 4.60 French francs per
share (an aggregate of $7,328,000). The newly-issued shares have been listed
on the French stock market, Le Nouveau Marche, and on the NASDAQ National
Market System.
During the first six months of 1997, 625,460 shares of Series C Preferred
Stock, 500 shares of Series D Preferred Stock and 1,240 shares of Series E
Preferred Stock were converted into an aggregate of 2,670,640 shares of
common stock.
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5. PENDING ACQUISITION
In July 1997 the Company entered into a letter of intent to acquire 100% of
the capital stock of Innovative Medical Systems Corporation ("IMS"). IMS,
located near Philadelphia, Pennsylvania, is a privately-held company which
specializes in the development, engineering and manufacture of instruments
for the biomedical industry. The acquisition is subject to negotiating and
entering into a definitive purchase agreement, the approval of the boards of
directors of OXIS and IMS, and the satisfactory completion of OXIS' due
diligence investigation.
6. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share." SFAS 128 changes the standards for computing and
presenting earnings per share ("EPS") and supersedes APB Opinion No. 15,
"Earnings per Share." SFAS 128 simplifies the standards for computing
earnings per share and makes them comparable to international EPS standards.
It replaces the presentation of primary EPS with a presentation of basic
EPS. It also requires dual presentation of basic and diluted EPS on the face
of the income statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
SFAS 128 is effective for financial statements issued for periods ended
after December 15, 1997, including interim periods; earlier application is
not permitted. This Statement requires restatement of all prior-period EPS
data presented. Earnings per share reported for the six-month periods ended
June 30, 1996 and 1997 are not affected as a result of adopting SFAS 128 due
to the Company's losses.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased during the first half of 1997 from a
deficit of $1,405,000 at December 31, 1996 to positive working capital of
$2,682,000 at June 30, 1997. This increase in the Company's working capital
resulted primarily from the issuance of common stock (net proceeds of
$6,240,000), offset by the effect of the net loss for the first half of 1997
($2,711,000 less non-cash charges of $702,000).
Cash and cash equivalents increased from $422,000 at December 31, 1996 to
$4,188,000 at June 30, 1997.
The Company expects to continue to report losses in 1997 as the level of
expenses is expected to continue to exceed revenues. To continue operations
in accordance with its current plans, the Company must raise additional
capital during the remainder of 1997. Although the Company has continued to
raise additional funds through private placements and a public offering
(described below), it cannot predict the sources, terms, amount, form,
and/or availability of additional capital to fund its operations to the end
of the current year. Failure to raise such additional capital would cause
the Company to severely curtail or cease operations.
The Company can give no assurances as to when and if its revenues will
exceed its expenses. While the Company believes that its new products and
technologies show considerable promise, its ability to realize significant
revenues therefrom is dependent upon the Company's success in developing
business alliances with biotechnology and/or pharmaceutical companies that
have the required resources to develop and market certain of these products.
There is no assurance that the Company's effort to develop such business
alliances will be successful.
During March and April 1997, the Company has raised $808,000 through the
issuance of short-term notes to certain of its shareholders.
On May 20, 1997, the Company issued 9,000,000 shares of its common stock
pursuant to an underwriting agreement with certain underwriters in France.
The underwriters purchased the stock at a price of 4.60 French francs per
share (an aggregate of $7,328,000). The newly-issued shares have been listed
on the French stock market, Le Nouveau Marche, and on the NASDAQ National
Market System.
8
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1997 COMPARED WITH THREE
MONTHS ENDED JUNE 30, 1996
REVENUES
The Company's product sales for the quarters ended June 30, 1997 and 1996
were as follows:
1997 1996
Diagnostic and research assays $611,000 $ 524,000
Bovine superoxide dismutase (bSOD)
for research and human use 3,000 613,000
Palosein(R) (bSOD for veterinary use) 77,000 63,000
Other 26,000 --
-------- ----------
$717,000 $1,200,000
======== ==========
Sales of the Company's diagnostic and research assays increased from
$524,000 in the second quarter of 1996 to $611,000 in the second quarter of
1997. This increase of $87,000 consists primarily of increases in the sales
of the Company's therapeutic drug monitoring assays ($57,000) and assays for
measures of oxidative stress ($27,000). Increases in sales of therapeutic
drug monitoring assays in the second quarter of 1997 were primarily to
distributors in Europe and Japan.
Sales of bulk bSOD for research and human use decreased by $610,000 in the
second quarter of 1997 as compared to the second quarter of 1996. The
Company's sales of bulk bSOD in 1996 and 1997 have been almost entirely to
the Company's Spanish licensee. No shipments were made to the Spanish
licensee in the second quarter of 1997, but shipments are scheduled in the
third and fourth quarters. Future sales of bulk bSOD continue to be largely
dependent on the needs of the Company's Spanish licensee. The Company
expects its orders for 1997 from the Spanish licensee to be less than those
for 1996. The Company's sales of bulk bSOD beyond 1997 are uncertain and
difficult to predict and no assurances can be given with respect thereto.
9
COSTS AND EXPENSES
Cost of sales was 54% of product sales for the second quarter of 1996 and
66% for the second quarter of 1997. Cost of sales of diagnostic and
research assays declined from 86% of the related sales in the second
quarter of 1996 to 72% in the second quarter of 1997, following the
consolidation of the Company's manufacturing operations into one location
in the third quarter of 1996. Cost of assay sales in both the second
quarter of 1996 and the second quarter of 1997 include approximately
$180,000 in amortization of purchase adjustments relating to 1994 business
acquisitions. Excluding such amortization the cost of diagnostic and
research assays for the second quarter of 1997 was approximately 41% of the
related sales. The average cost of sales for the second quarter of 1996
was lower than the second quarter of 1997 due to a sale of bSOD with a
lower than normal cost in the second quarter of 1996.
Research and development expenses decreased from $1,179,000 in the second
quarter of 1996 to $883,000 in the second quarter of 1997. The decrease in
research and development expenses resulted from cost reductions in the
second quarter of 1997 compared to the second quarter of 1996 of (1)
$36,000 in research and development costs of the Company's French
subsidiary, (2) $59,000 in costs of the former Therox operations (the
former Therox laboratory facility was closed in May 1996), (3) $75,000 in
research and development costs at the Company's Portland, Oregon facility,
and (4) $126,000 in expenses for outside development contracts primarily
relating to the preclinical development work and clinical trials on the
Company's glutathione peroxidase mimics program.
Selling, general and administrative expenses decreased from $881,000 in the
second quarter of 1996 to $728,000 in the second quarter of 1997. The
decrease is primarily the result of a decrease of $128,000 in the general
and administrative expenses of the Company's French subsidiary. In the
third quarter of 1996 all of the Company's manufacturing operations were
consolidated in the United States and the French subsidiary became a
research facility. In connection with this restructuring, two
administrative positions have been eliminated and certain other costs which
were previously charged to administrative expenses are now being classified
as research and development costs. The Company also experienced reductions
in smaller amounts at its Portland, Oregon headquarters. The cost
reductions were offset by an increase of $55,000 in foreign exchange losses
in the second quarter of 1997 as compared to the second quarter of 1996.
INTEREST INCOME AND EXPENSE
Interest income increased by $7,000 and interest expense decreased by
$6,000 in the second quarter of 1997 as compared with the second quarter of
1996, primarily due to a reduction in interest-bearing obligations and an
increase in funds available for short-term investments following the sale
of common stock in May.
10
NET LOSS
The Company continued to experience losses in the second quarter of 1997.
The second quarter 1997 loss of $1,364,000 ($.07 per share) was $155,000
less than the $1,519,000 ($.12 per share) loss for the first quarter of
1996. The reduction in the net loss is primarily due to the decreased
research and development and selling, general and administrative expenses,
offset by a decline in product sales and gross margin from product sales.
The Company plans to continue to invest in research and development
activities and incur marketing, sales and administrative expenses in
amounts greater than its anticipated near-term product margins, and, as a
result, expects to incur a substantial net loss for 1997.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS
ENDED JUNE 30, 1996
REVENUES
The Company's product sales for the six-month periods ended June 30, 1997
and 1996 were as follows:
1997 1996
Diagnostic and research assays $1,159,000 $1,163,000
Bovine superoxide dismutase (bSOD)
for research and human use 415,000 1,233,000
Palosein(R) (bSOD for veterinary use) 231,000 141,000
Other 39,000 --
---------- ----------
$1,844,000 $2,537,000
========== ==========
Sales of bSOD in 1996 and 1997 have been almost entirely to the Company's
Spanish licensee. The reduction in bSOD sales for the first six months of
1997 compared to 1996 is primarily the result of a reduction in volume of
product delivered to the Spanish licensee. The increase in Palosein/(R)/
sales is attributable to a substantial sale in the first quarter of 1997 to
a distributor in Germany.
11
COSTS AND EXPENSES
Cost of sales as a percent of product sales increased from 62% in the first
half of 1996 to 67% in the first half of 1997. Cost of sales of diagnostic
and research assays declined from 82% of the related sales for the first
half of 1996 to 69% for the first half of 1997, following the consolidation
of the Company's manufacturing operations into one location in the third
quarter of 1996. Cost of sales for the first six months of 1996 was lower
than for the first six months of 1997 due largely to a sale of bSOD with a
lower than normal cost in the second quarter of 1996. Cost of sales in
both the first six months of 1996 and 1997 include approximately $360,000
in amortization of purchase adjustments relating to 1994 business
acquisitions. Excluding such amortization, cost of sales would have been
approximately 48% of product sales for the first half of both 1996 and
1997.
Research and development expenses decreased by $372,000 from $2,361,000 for
the first half of 1996 to $1,989,000 for the first half of 1997. The
decrease in research and development expenses resulted from cost reductions
in the first half of 1997 compared to the first half of 1996 of (1)
$131,000 in costs of the Company's French subsidiary, (2) $147,000 in costs
of the former Therox operations, and (3) $139,000 in research and
development costs at the Company's Portland, Oregon facility.
Selling, general and administrative expenses decreased from $1,626,000 for
the first six months of 1996 to $1,332,000 for the first six months of
1997, a decrease of $294,000. The decrease was primarily due to a
reduction of $272,000 in general and administrative expenses of the
Company's French subsidiary. Smaller cost reductions in general and
administrative expenses at the Company's Portland, Oregon headquarters were
offset by an increase of $28,000 in foreign exchange losses.
INTEREST EXPENSE
Interest expense decreased by $45,000 in the first six months of 1997 as
compared to the first six months of 1996, due to a reduction in interest-
bearing obligations.
NET LOSS
The Company's loss for the first six months of 1997 was $2,711,000 ($.16
per share) compared to a loss of $3,065,000 ($.25 per share) for the first
six months of 1996. The decrease in the net loss is primarily due to
reductions in research and development expenses ($372,000) and selling
general and administrative expenses ($294,000), offset by reduced profit
margins on product sales ($360,000)
12
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's 1997 Annual Meeting of Stockholders held on May 9, 1997
("1997 Stockholders Meeting"), the Company's stockholders elected the
following persons to the Company's Board of Directors:
Common Series B Series B Series C Series C
Common shares Preferred Preferred Preferred Preferred
Name shares FOR WITHHELD FOR* WITHHELD* FOR* WITHHELD*
----- ---------- --------- --------- --------- --------- ---------
Anna D. Barker, Ph.D. 11,640,828 477,927 642,583 0 801,482 0
Timothy G. Biro 11,087,129 1,031,626 428,389 214,194 801,482 0
Brenda D. Gavin 11,636,828 481,927 642,583 0 801,482 0
Stuart S. Lang 11,642,828 475,927 642,583 0 801,482 0
James D. McCamant 11,641,788 476,967 642,583 0 801,482 0
David A. Needham, Ph.D. 11,642,828 475,927 642,583 0 801,482 0
Ray R. Rogers 11,612,450 506,305 642,583 0 801,482 0
A.R. Sitaraman 11,691,988 426,767 642,583 0 801,482 0
* In equivalent common votes.
At the 1997 Stockholders Meeting, the stockholders also approved (1) an
amendment of the Company's 1994 Stock Incentive Plan (as described in
greater detail in the Proxy Statement dated April 10, 1997) to increase the
number of shares of common stock available for issuance thereunder by
2,000,000 shares, to an aggregate of 4,200,000 shares (8,004,720 common
shares, Series B Preferred shares with 642,583 equivalent common votes and
Series C Preferred shares with 801,482 equivalent common votes voting for;
692,080 common shares voting against; 171,336 common shares abstaining; and
3,250,619 broker non-votes) and (2) an amendment of the Company's Restated
Certificate of Incorporation to increase the authorized number of shares of
OXIS common stock from 40,000,000 shares to 50,000,000 shares (11,731,565
common shares, Series B Preferred shares with 642,583 equivalent common
votes and Series C Preferred with 801,482 equivalent common votes voting
for; 257,562 common shares voting against; and 129,628 common shares
abstaining.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits - See Exhibit Index on page 15.
(b) Reports on Form 8-K.
The Company filed with the Commission Reports on Form 8-K on April 17,
April 29 and June 2, 1997 which report matters relating to the sale of
common stock in a underwritten public offering in France.
13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OXIS International, Inc.
August 11, 1997 By /s/ Anna D. Barker
------------------
Anna D. Barker, Ph.D.
President and Chief Executive Officer
August 11, 1997 By /s/ Jon S. Pitcher
------------------
Jon S. Pitcher
Chief Financial Officer
14
EXHIBIT INDEX
Exhibit Page
Number Description of Document Number
10(a) Underwriting agreement
10(b) Listing advisor--market making agreement
27(a) Financial data schedule
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15